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Tulipe Ushuru Tujitegemee 04/08/08 20:33:06 ISO 9001:2000 CERTIFIED Slide 4 w w w. K R A. g o. k e INTRODUCTION The EAC Customs Union as an entry point of the EAC integration process commenced on 1st January 2005 with three EAC Partner States; Tanzania, Uganda and Kenya. Burundi and Rwanda joined EAC in 2007 The EAC Customs Union had an initial transitional period of 5 years starting in January 2005 and ending in December 2009 The end of transitional period in December 2009 paved way for the commencement of the Fully Fledged Customs Union on January 1st The following slides show the progress so far made.

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Tulipe Ushuru Tujitegemee 04/08/08 20:33:06 ISO 9001:2000 CERTIFIED Slide 5 w w w. K R A. g o. k e THE PROTOCOL ON THE ESTABLISHMENT OF THE EAC CUSTOMS UNION Implementation of the EAC Customs Union started in January 2005 and has been successful. However the following challenges have been experienced; The link between the coordination and monitoring roles of the Directorate of Customs vs enforcement by the national customs authorities; Conflicting interests at national and regional levels (promotion of trade and investment vs revenue maximization); Working of the appeals system; No instrument to guide the discretionary powers of the Commissioners of Customs in the Partner States

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Tulipe Ushuru Tujitegemee 04/08/08 20:33:06 ISO 9001:2000 CERTIFIED Slide 6 w w w. K R A. g o. k e THE COMMON EXTERNAL TARIFF (CET) Has greatly liberalised the EAC region, (average applied tariffs have come down in all Partner States; Has enhanced predictability for exporters and investors; Has led to an increase in imports under the 3 tariff bands, especially under the 0%-tariff band. Imports under the 0-tariff band were 63.6% (Kenya), 67.9% (Uganda), and 57.3% (Tanzania) Affected trade regimes in the three countries: oIncreased tariffs for Uganda and Tanzania; oReduced tariffs for Kenya Has led to an increase in tariff dispersions (a) from one product to another, (b) across products within sectors, and (c) across stages of production.

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Tulipe Ushuru Tujitegemee 04/08/08 20:33:06 ISO 9001:2000 CERTIFIED Slide 7 w w w. K R A. g o. k e The commencement of a fully fledged Customs Union implies that goods originating in the EAC territory shall attract zero tariffs (zero import duty) once traded among EAC Partner States. Domestic taxes such as Value Added Taxes (VAT) and Excise duties shall be paid to the consuming/importing countries. Although a fully fledged Custom Union ushers in a single customs territory, goods traded within the community will still be subjected to domestic taxes. The successful elimination of internal tariffs among EAC Partner States ushers in a new era where goods started to be traded duty free among EAC Partner States. Tanzania and Uganda accorded 0 per cent import duty to Kenya following the end of the elimination of internal tariff on 31st December Kenya, Rwanda and Burundi had already accorded 0 per cent import duty to other Partner States.

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Tulipe Ushuru Tujitegemee 04/08/08 20:33:06 ISO 9001:2000 CERTIFIED Slide 8 w w w. K R A. g o. k e APPLICATION OF EAC RULES OF ORIGIN Ideally, under a fully fledged Customs Union, member states should not apply rules of origin as goods manufactured in one member state are supposed to move freely. Also goods imported into Customs Union from the rest of the world are supposed to circulate freely. However, this will not be the case for EAC since modalities for collection and accounting for customs revenue are not in place yet. Sphagetti bowl complexity poses difficulties in the removal of the application of Rules of Origin. Therefore, in order to avoid trade deflection as well as promote industrialisation in the Customs Union, EAC will continue applying EAC Rules of Origin. The goods qualifying for EAC Rules of Origin are the only ones which will qualify for community preferential tariff treatment i.e zero import duty.

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Tulipe Ushuru Tujitegemee 04/08/08 20:33:06 ISO 9001:2000 CERTIFIED Slide 9 w w w. K R A. g o. k e EXEMPTIONS AND REMISSIONS The value of goods which qualified for exemptions and remissions has been growing (especially for Kenya and Tanzania); Revenue foregone has also increased; There are a number of implementation challenges regarding the exemption regime: o Exemptions not categorised and harmonised with other investment incentives provided by different agencies; o Lack of an appropriate monitoring mechanism